Government Shutdown: How It Affects Economy, Stocks, American People

The shutdown faced by United States economy and citizens can be blamed on the House of Republicans who, instead of voting a simple Yes or No on a bill funding the government for a couple of weeks, have decided to shut down the federal government. This is the first partial shutdown faced by U.S. government in 17 years as Republicans and Democrats failed to arrive at a consensus on the changes in the 2010 Affordable Care Act.

Shutdown to slow growth rate

Owing to the shut down, Federal government employees all over America will not work, and paychecks will be delayed for some. Businesses in the United States will have fewer customers and the senior citizens receiving benefits from the state will be at risk of losing some of them.

According to estimates from IHS Inc, owing to the partial shutdown, the United States will stand to lose at least $300 million per day in lost economic output. Although it is a small amount when compared to the $15.7 trillion economy, it would certainly be a blow to the economy and take a toll on investor and business confidence, according to Bloomberg.

Further, IHS forecasts that the annualized growth guideline of 2.2 percent in the fourth quarter will come down 0.2 percent in a week-long shutdown. Also, if the closing extends to 21 days, similar to what happened in 1995-96, the growth rate will be reduced by a further 0.9 percent to 1.4 percent, according to Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.

As per the estimate provided by Bank of America Merrill, a two-week closing may slow the fourth-quarter growth by 0.5 percent, and if the shut-down remains for all of October, growth numbers may decline by 2 percent.

Stocks Decline

President Obama said that withdrawing funding from government operations will slow down the economy, and it is irresponsible to put the hard-earned progress of United States people at risk.

The S&P 500 declined 0.6 percent to 1,681.55 at the close of trading. S&P 500 noted a decline in all 10 major industries among which consumer goods, oil and gas and financial shares tumbled the most.

Shutdown concerns will also push the stocks lower, taking away the biggest quarterly gain since the start of 2012. The yield on 10-year Treasury notes were at its seven weeks low, reports Bloomberg.

“Government spending touches every aspect of the economy, and disruption of spending, more than the direct loss of income, threatens to damage investor and business confidence in ways that can seriously harm economic growth,” LeBas told Bloomberg.